Practice raises ‘serious contractual and legislative concerns’

THE Real Estate Institute of NSW is concerned some real estate agents mistakenly believed they could outsource AML/CTF obligations via deposit-flicking.

The controversial practice, where a real estate agent transfers a property deposit to a third party until settlement, has sparked concerns of possible financial risk and AML/CTF non-compliance.

NSW Fair Trading last week announced an investigation into the practice and whether real estate agents were acting in line with legal obligations.

§ Contractual and legislative concerns

REINSW chief executive Tim McKibbin said in a statement that deposit flicking required closer scrutiny, with the model raising “serious contractual and legislative concerns”.

McKibbin pointed to uncertainty around consumers’ access to statutory compensation if there was a trust account issue among the key concerns.

“There appears to be a belief held by some that outsourcing the trust accounting function to a third party removes the AML/CTF obligations. That is not our position,” he said.

§ Agents remain accountable under Tranche 2 laws

Under the Tranche 2 laws, overseen by federal anti-money laundering regulator AUSTRAC, practitioners must conduct due diligence on clients, report large cash transactions, keep records and report suspicious activity or risk multi-million-dollar fines.

The regulator has warned real estate agents that they remain accountable under the new laws aimed to combat organised crime, despite the availability of deposit flicking.

Griffith University’s Graeme Hughes, an expert on business and consumer issues, said some agents continued to think they could “paint outside the lines”, despite AUSTRAC’s warning.

“AUSTRAC has already been clear, which is that an agent who brokers the transaction remains a reporting entity regardless of whose account the money sits in, so the manoeuvre fails on its own terms before it even begins,” Hughes said.

§ Statutory trust account protections for buyers

As the practice continued, he said a big concern was for property buyers and reminded agents that “a statutory trust account is not administrative housekeeping”.

“It is a protection built deliberately around the buyer – funds held at an approved institution, audited and reported regardless of the result, ring-fenced from every other use, and in most states standing behind a fidelity fund if money ever goes missing,” he said.

“When a deposit is flicked to an outside platform, tens of thousands of dollars belonging to an ordinary buyer move outside that architecture and into the hands of a party the buyer never chose and cannot readily scrutinise.”

§ Conveyancers urge authorities to act

At least 170 conveyancers have lobbied authorities to clamp down on the practice, which has been criticised by the Australian Institute of Conveyancers NSW.

AIC NSW president Jennie Tonner has urged NSW Fair Trading to probe whether deposit flicking breaches agents’ legal obligations and to act ahead of the 2027 state election.